Archive for November, 2014

The Frontier Mafia

Since we ‘do not have competition’ we need to find other benchmarks for performance that offer a means of comparison with the world at large. As a “Purpose” driven business, we do not believe in setting primary benchmarks/KPI’s based on financial numbers. One thing we look at, for instance is how successful we are at selecting and incubating talent.

Frontier has a knack for making brilliant individuals even more brilliant. A closer look at Echelon magazine’s 40 under 40 list reveals the presence of nearly 10-12 people who started off their careers in research and/or analysis. Three of those people started their careers or are still attached to Frontier itself. In absolute terms Frontier has more alumni on that list than virtually all the organizations in Sri Lanka, and given our small size, on a proportional basis, far more than anyone else. Furthermore, members of our organization have found success in their careers, in varying fields of work, beyond their time at Frontier.

Just what makes us a good incubator? We’re not exactly sure. We like to think our flexible and learning oriented culture plays a role. However, like the Paypal mafia, The class the stars fell on or the Harvard MBA class of 1949 the exact combination of success factors that lead to this phenomenon are hard to compute. It could be because we naturally attract free spirited, brilliant and innovative people to our firm.

Frontier is a talent incubator. And not necessarily talent only in economics, finance or any of the other traditional areas our businesses are in. In a broader sense, we are an organization that believes in giving a start to those with potential to be the most influential young innovators, disruptors, thought leaders and entrepreneurs of the future.

The Global Economy in November

October ended with an eventful week with two of the major central banks in the world announcing diverging monetary policy measures. In its October FOMC meeting the US Federal Reserve concluded its quantitative easing program taking a slightly hawkish stance on interest rates while Bank of Japan surprised markets with a ¥30 trillion increase in its monetary stimulus. The BOJ decision saw the yen weakening to a seven-year low against the greenback. November started off with the European Central Bank confirming its stimulus goals, indicating a €1 trillion increase in its balance sheet. The announcement dragged the euro to a two-year low. Continuing on its downward spiral, Brent slid below the psychologically important $80 per barrel level for the first time since 2010. Nigeria, pressured by weakening crude prices, saw its stocks entering a bear market and currency falling to an all-time low during November. Economic data published towards the end of the month showed Greece posting economic growth after six years of recession. However, Japan’s economy unexpectedly contracted for the second consecutive quarter, taking the economy into technical recession.

Everything You Thought You Knew about Competition is wrong

Every now and then we wonder, who do we really compete with? Currently Frontier doesn’t really have a counterpart in the exact work we do, but that doesn’t mean this will always be the case. When we look at competition we look at our clients’ share of mind. All clients have limits in budgets and resources, and it is these resources we compete for. Our job is to create enough value so that our clients still feel justified to work with us.

That being said, we are strong believers in innovation, and continuous paradigm shifts that not only tries to beat the competition, but also to go where no competition exists. Peter Thiel recently called this habit an instance of being a monopoly. And we fully agree. Monopolies are traditionally cast in the mold of cronyist economic bullies, but Thiel’s definition adds a refreshing new perspective to the word; true monopolies are companies that keep transcending the reach of traditional markets through continuous innovation.

“Vertical progress is harder to imagine because it requires doing something nobody else has ever done. If you take one typewriter and build 100, you have made horizontal progress. If you have a typewriter and build a word processor, you have made vertical progress.”

“Most of us are busy making horizontal progress. We are competing—trying to better or make incremental improvements to what already exists. Certainly there is a value in this, but it leads to the creation of commodity businesses. Thiel recommends: avoid competition as much as possible. Instead, be a monopoly. Monopolies occur when some is doing something no one else is doing. “Monopolies deserve their bad reputation—but only in a world where nothing changes….Creative monopolists give customers more choices by adding entirely new categories of abundance to the world.”

To make a finer point, Thiel writes: “Every business is successful exactly to the extent that it does something others cannot. Monopoly is the condition of every successful business.”

So why are economists obsessed with competition as an ideal state? It is a relic of history. Economists copied their mathematics from the work of 19th-century physicists: They see individuals and businesses as interchangeable atoms, not as unique creators. Their theories describe an equilibrium state of perfect competition because that is what’s easy to model, not because it represents the best of business.

Read more of this excellent article here

Like Peter Thiel we like to ask ourselves the question; ‘what valuable products/services are not being offered?’. This is the strategic ethic that has driven us since our inception, and as the market changed around us, we have so far been able to keep expanding into new areas, and hope to keep doing so.

The Global Economy in October


High market volatility highlighted the month of October caused by concerns about tightening global liquidity, a weakening Eurozone, a slowing China and Ebola. Stocks and bond yields to plunged around the world. The US 10 year treasury yield fell below 2% for the first time in 16 months, touching an intra-day low of 1.85% in mid-October. Crude prices came under further pressure after Saudi Arabia made clear its stance on maintaining market share as opposed to supporting prices by cutting production. Gold prices slumped in early October, briefly testing support at $1180 per ounce level, amid optimistic US economic data and a strengthening greenback. However, prices reversed its course towards the latter part of the month as the metal found support from improving physical demand in China and India as the countries approach their festive seasons. Emerging markets remained under pressure through the month as fund outflows continued. African sovereigns in particular saw a sell-off this month and a rise in yields as Ebola fears took its toll.

Eight Things Frontier Doesn’t Offer You

We talk a lot about what Frontier does and what Frontier, by virtue of its culture, offers to its clients and team members. But surprise, surprise! There are also things that Frontier doesn’t offer yes indeed. Some of these things are because of an active cultural choice, while others are consequences of where we are in our organizational growth. Yet other things are because we haven’t really thought they’d be appreciated as much, like Christmas hampers for instance, but time might change our minds about these.

  1. A ‘Typical Office Environment’

Most interns come looking for ‘work experience’ that covers a ‘typical office environment’. However Frontier strives pretty hard to shy away from this definition of its work environment, by choice. We do not have regular work times, team members only need to be in office for meetings and can work from wherever they like otherwise. We also don’t dress like a typical office, you will find us mostly dressed in casual clothing except of course, when meeting clients. Yes we do believe in dress codes in some occasions. But we are continuously surprised as to how many candidates, want to be in an environment where everyone is dressed formally, a very rare occasion at Frontier

  1. The visibility of a Long Career Ladder

Being still a rather small organization, we are quite flat in terms of structure. However, we do have levels of hierarchy within Frontier. But at the end of the day, there is a limit to how much you can see yourself rising within Frontier.

Because we quickly give responsibility and leadership roles to team members who we feel confident about and because there are no long “pay your due” waiting time in job roles, most of our current team members that lead key client projects have just over a year of experience with us. The team member leading Econ and Equity Research as a whole has just over three years at Frontier. Five years ago this level of hierarchy did not exist; we were an organization with just small team lead and managed by the founder but as the organization grows, so will prospects of leadership.

.So with the free time you have in your regular work (which has been specifically included for a reason) to develop new products and ideas and thus help expand the business and create leadership roles for yourself. This way, as Frontier grows, you grow along with it!

  1. Training for New Recruits

We don’t offer new team members a formal training program or course, although we do have a short introductory presentation and have a discussion about our culture. This reflects the type of work we do (see next point) in the sense that a lot of what we do is very ‘on the ground’ and ‘street’. That is to say our work is very intuitive and we improvise as the ground situation changes rather than sticking to formulaic patters of work that end up not reflecting the realities our clients face in their respective markets.

Believing in ‘cultural symmetry’ means that this mirrors how we would like our team to work. So new team members are given work projects right as they join and allowed to exercise their creativity and apply their intuition. In addition to giving a more robust training than what we think would have been obtained through a formal program, this method has the added benefit of bringing in a fresh pair of eyes to look at old ways of doing things. We find that new team members, unencumbered by pre-existing paradigms often contribute creative solutions that make our work much more effective and efficient.We often throw team members in the “deep end”, which we seem to have developed quite a tradition of. From very early on, even from day one, we may choose to give the sort of assignment to new team members that would usually be given to someone with much more experience in another organization from creating client presentations to providing their own view on a particular stock or global markets etc.

Because of how well we recruit, the smarts of many team member that come to frontier mean that we have often had new people come up with “client ready” or almost client ready work. In many cases better than what an existing team member might have produced. But being put in the deep end is also a double edged test, failure to perform will usually reflect badly on your ability to continue to get interesting work. Sink or swim is how we usually like to work with new recruits.

We are aware that this approach may not seem very ‘fair’ to some. And as the firm has grown we are beginning to see other ways in which people with different learning curves may contribute significantly also. As our work has become more complex, there are very important elements that require a lot of reliability, efficiency and effectiveness that also allows a new team member to gradually adjust and fall into.

We however encourage learning/exposure outside of what you do. Our focus on ‘innovation learning’ means we focus a lot on what are called ‘discovery activities’. Rest assured however, that learning is something very important to us, we just do not believe in pushing people too much. We have regular ‘learning presentations’ where team members impart knowledge to each other, based on their own specific areas of interest, often not specific to the work they do. We also regularly send team members to regional workshops and conferences which are often not related to their work, quite early on in their stints with us in order to reward them for good work and also to broaden their expand their knowledge and experience.

We do however provide ‘mentoring’; senior team members will guide new members when needed and provide feedback after work is done. And we will also offer a modicum of coaching, where we point team members in directions in which they can improve themselves or can profit by learning, but not too much since self-motivation and entrepreneurial spirit are key attributes in which we like to see in our team.

  1. Specific Job Descriptions

Frontier also practices not offering its team members a specific job description. Broad areas are usually specified as team member join, ‘equity’ or ‘econ’ for example, but the actual work they do could potentially cover every single area of their field. This we find encourages creativity and variety which keeps the work interesting, and also builds a team with exposure to multiple areas. Team members are also encouraged to ‘cross-pollinate’ working in different areas such as equity, econ and info curation if they like to.

  1. Conventional Research Experience

Would-be-analysts looking for typical research experience usually find that Frontier’s research is usually different in character from that carried out by most other broking firms in the country. We focus very much on client expectations and needs. We also eschew many of the standard tried and tested models in favor of an instinctive, grassroots understanding of how market realities work. Most new members find that a lot of unlearning is required before one can truly grasp our methods, but once a certain level of mastering is acquired the knowledge gained can be very rewarding and instructive of theory; contributing to an overall capacity for analysis that we believe is better rounded and more aware of how actual markets work.

  1. Breathing Down Your Neck

At Frontier, no one will keep pushing you to do work. That’s your responsibility. If you work well you will find that the benefits will come. If you slack off and skip on deadlines because you think the environment is ‘lenient’ then you will experience corresponding disbenefits; someone else will get the work and the rewards that go with it, while we may even hire new team members to take on the slack. This goes in line with our philosophy of an entrepreneurial culture and symmetrical reward systems. Team members get rewarded according to the value they contribute, and team members are free to choose to contribute less if they are prepared to take a corresponding hit on their remuneration.

  1. ‘Standard’ ‘Perks’

Presently at Frontier, you won’t get medical insurance, car loans, company sponsored vacations, dental coverage or Christmas hampers. Most of this is because as a small organization, ‘all cash’ remuneration is easier to deal with, and from a rational point of view it might allow a team member more choice to exercise in terms of how they use their remuneration. At end of the day we look at it in terms of cost to company. Including “benefits” or perk such as the above means we have less to give in cash.

However we are now realizing that not everyone thinks ‘rationally’; non-monetary rewards are often valued more and seem to work better and we are shifting to offering more of them; however we still prefer to give the choice for those who would still like to receive remuneration in simple cold, hard cash! We do however have team building activities and office outings, we like to keep them as flexible as possible, and our monthly ‘fun days’ for instance, work on a basis where one team member decides what everyone will do for the fun day every month, and everyone can choose whether they want to attend.

Not being big on ‘typical office environments’ we don’t really provide personal cubicles. All of us work in one big space and the choicest spots are usually grabbed on a first come, first served basis, we like to think of it as being democratic.

  1. Constancy (i.e. Change is the Only Constant)

Frontier is also in constant change. In fact, that is a core part of our organizational identity. Just like we’re considering moving to more non-cash based reward systems, we have also moved from a work culture of only rewarding creativity and ingenuity to also appreciating process, routine and reliability. In terms of our core business, we have also evolved into providing information services from being purely an advisory firm, while our advisory services have also evolved over the years. From being very flat early in our life, we now have rudimentary structures of hierarchy as we have felt the need for it. We are also moving to a much more transparent pay structure than what other organizations are used to and recently made the jump from having flexible working hours to having no working hours at all.

Some may find this change hard to deal with, preferring static environments that provide well defined grooves within which to work. Change can also mean that what we offer changes over time as well. But our core commitment to a flexible, lean working culture and dedication to a framework of entrepreneurship will remain; all change that happens will only take place within this structural reality.